Five weeks after unveiling his company's deal for Golden West Financial Corp., G. Kennedy Thompson, the chairman, chief executive, and president of Wachovia Corp., was forced to defend the deal again Wednesday.
But this time Mr. Thompson said he is even more comfortable with the $25.5 billion deal now than he was when it was announced May 7, and he cited a comfort level with the integration process and an improved revenue outlook.
It was clear that he has not quieted the critics entirely, but he managed to give them a glimpse into the planned integration during a conference call with investors moderated by Michael Mayo, a Prudential Equity Group LLC analyst.
Mr. Thompson said a merger-integration team meeting he attended last week left him "thrilled to see the level of interplay" between the two companies.
"We're going to do better from a revenue standpoint I think than we thought," Mr. Thompson said, due in part to Golden West's sales-oriented work force. "We like it more today than we did the day we announced it, and we liked it a lot then," he added. He did not give a dollar amount for revenue synergies.
Wachovia executives have found themselves repeatedly defending the deal; the Charlotte company held two conference calls within a week after announcing it.
Since the deal was unveiled Wachovia's stock has dropped 12%, because of concerns about Golden West's specialization in option adjustable-rate mortgages, the deal's high premium, and the perceived difficulty of turning the Oakland, Calif., thrift company into a cross-selling machine.
Mr. Mayo, who lowered his rating for Wachovia's stock to "underweight," from "neutral weight," after the deal was announced, offered Mr. Thompson another opportunity to defend it.
At times Mr. Thompson seemed to take umbrage at having to defend the deal again. He said investors are overlooking the quality of Golden West and its track record and the opportunities the companies would have to cross-sell mortgage products.
"The last thing that the market has absolutely wrong is our ability to implement our retail banking model," he said. "I've got tremendous confidence in our ability to do that," he added.
Wachovia has projected that the Golden West acquisition would be neutral to operating earnings in 2009, add a penny a share to cash earnings in 2008, and generate $53 million of after-tax cost savings and $293 million of merger-related expenses. Wachovia expects to close 55 branches and cut 1,100 jobs.
Wednesday's call had some tense exchanges between the typically reserved Mr. Thompson and some Prudential clients. When asked about the difficulties of converting a large thrift company, he quickly described the question as the one "that frustrates me more than any other."
Mr. Thompson went on to say that his company had acquired 27 thrift companies over the past 15 years, and that about one-third of its deposits in Florida, where he had once been the market president, have come from such acquisitions. "Golden West is a thrift in name only, and you have to just put aside all of your preconceived notions about what a thrift is when you talk about Golden West," he added.
But the next investor questioned that comment, and Mr. Thompson quickly clarified that the $128 billion-asset Golden West did not resemble the "traditional S&L," which had "lousy branch locations and no sales culture." However, he acknowledged that the product line is "thrift-like."
Nancy Bush, an analyst at NAB Research LLC in Aiken, S.C., said that Wachovia had failed to adequately publicize the Prudential call, and that she found out about it only after the fact.
In many ways the conference call was markedly different from Mr. Thompson's one-on-one with Mr. Mayo in June of last year. During that call, the talk revolved around theoretical dealmaking; Mr. Thompson characterized California as a long-term goal and said his company would likely enter that state through branch-building at some point over a five-year period.
In March, Wachovia acquired Westcorp Inc. and WFS Financial Inc. of Irvine, Calif. Though the $542 billion-asset company picked up 19 branches in southern California through those deals, they were largely viewed as a way of beefing up its auto-finance operations.
By comparison, Golden West has 285 branches, including 123 in California and others in high-growth markets such as Chicago, Denver, and Phoenix.
On Wednesday, Mr. Thompson again contested the notion that the majority of Golden West's branches are in subpar locations.
"They opened those branches in affluent areas in the West because the purpose of that branch system was to raise deposits to fund mortgage growth," he said. "As a result … those branches are almost all in the kind of places where we would have had branches if we had had the ability to be in the West."
During the call, Mr. Mayo asked Mr. Thompson to speculate again on future acquisitions - specifically, what Wachovia's international operations would look like in five years.
Mr. Thompson would not provide any projections, except to say that international acquisitions are "not on our windshield." Wachovia would take its time integrating Golden West and "will be out of the big deal business certainly for a significant amount of time." Last month he said the integration could last until 2008.
